What is “Guanxi” and how does it affect foreign businesses in China?

Q. Many people have often stressed the importance of “Guanxi” [pronounced `gwan-shee`]—that is relationships—and how it plays a vital role in successful business deals in China. How do you see business relating to Guanxi?

A. First of all, Guanxi is often viewed by foreign enterprises and foreign parties as some kind of a mysterious Eastern force that can move mountains. Very frankly, Guanxi is no more and no less than relationship between the parties. Two parties have known each other for quite some time, are familiar, are willing to help each other, give each other some “face,” shall we say, provide each other with some favors. That’s really all Guanxi is. There’s really no mystery to it at all, and on top of that, there’s really no mystery to doing business in China. If you have a good product, you’ve got a good service and you have excellent execution, you’re going to be successful with your business in China. That is the very basic fundamental of doing business in China. Now keep in mind, in providing analogy, if you have good Guanxi it can perhaps provide you, you know, with an access to get an interview, but it won’t get you the job. Ultimately, Guanxi will rarely allow you to attain something that is otherwise unattainable. Keep in mind, if you have a bad plan, if you have a plan that does not meet with Chinese consumers’ welcome, if a plan is not well thought out, ultimately, all the Guanxi in the world is not going to make that business successful.

Q. Is Guanxi usually a business to business, person to person phenomenon? What can you say about Guanxi as it applies to government contacts?

A. As I mentioned, Guanxi is relationship between the parties. Often it is people that have known each other, maybe they’ve grown up over the years, they’ve had other business dealings with each other, and they’re comfortable with each other. They’re friends and they’re willing to say, “I’ll give you face, I’ll take the appointment, I will meet with your friend.” That’s what Guanxi really is. And usually between two businesspeople, there’s no harm, no foul. You know, ultimately, that’s the relationship.

But it becomes particularly problematic when that other party who is doing you a favor is a government official. Oftentimes, people would feel that in order to obtain the Guanxi, you have to provide some token of appreciation, perhaps you have to even sometimes provide some kind of consulting fee. We believe that falls right into the area of anti-bribery, commercial bribery laws and, particularly for those that are from the U.S., the Foreign Corrupt Practices Act. These are the areas that are very problematic and they cannot be looked at by giving generalities. We realize that in China there are certain customs that may be different, but let’s keep in mind that these laws are both civil and criminal laws and that what you do in China will effect the parent or the home corporation. So, in all recommendation, whenever you’re faced with these kinds of situations, find someone locally who understands both the culture and the demands in China, as well as the international expectation in terms of compliance with law. And then look at this on a case by case basis.

Q. So if that’s the case, is Guanxi to be avoided altogether?

A. No, not at all. Many people often say if you don’t have good Guanxi in China, you’re not going to get anywhere. And I think there’s some truth to that. I think we need to keep that in mind, and the reason is that particularly when you’re dealing with the government officials, oftentimes they’re so busy. They’ve got hundreds of projects that they’re looking at. They’re not necessarily going to take your appointment. They’re not necessarily going to give you the time of day to understand what you’re looking for. So I think Guanxi has its place in China, that the key to it is: when do you cross that line, when do you get to the point where you could be in violation? And that is where I think every business that is thinking about doing business in China, should have this part of the strategic plan: How do you enter into China so that you don’t violate the very insidious problem with the Foreign Corrupt Practices Act or other bribery laws.

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